The costimulatory molecules in the B7-CD28 families are important in the regulation of T cell activation and tolerance. The butyrophilin family of proteins shares sequence and structure homology with B7 family molecules; however, the function of the butyrophilin family in the immune system has not been defined. In this study, we performed an analysis on multiple butyrophilin molecules and found that butyrophilin-like (BTNL)1 molecule functions to dampen T cell activation. BTNL1 mRNA was broadly expressed, but its protein was only found in APCs and not T cells. The putative receptor for BTNL1 was found on activated T cells and APCs. Also, recombinant BTNL1 molecule inhibited T cell proliferation by arresting cell cycle progression. The administration of neutralizing Abs against BTNL1 provoked enhanced T cell activation and exacerbated disease in autoimmune and asthma mouse models. Therefore, BTNL1 is a critical inhibitory molecule for T cell activation and immune diseases.